Expanding asset allocation into illiquid markets
Global Investment Insights
with Zoe McHugh, Portfolio Manager, QIC
Zoe McHugh is the Portfolio Manager for QIC State Investments’ long-running multi-asset fund, the Long-Term Diversified Fund (LTDF).
This Fund targets specific investment objectives by allocating risk across a range of liquid and illiquid asset classes. To help build the LTDF, the QIC State Investments team leverages QIC’s in-house investment capabilities, as well as those of external fund managers.
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The coronavirus pandemic heightened recognition of large social conflicts that have been brewing in the global economy for decades.
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Zoe’s role as Portfolio Manager sees her working with many of QIC’s clients to help them achieve their differing objectives. “This is extremely rewarding at such an interesting time for global financial markets, when we need to consider not only traditional measures of investment, like risk and return, but other considerations also”, Zoe highlighted.
She elaborated further, “there was clearly a large paradigm shift that occurred in 2020, stemming from the onset of the coronavirus pandemic and heightened recognition of large social conflicts that have been brewing in the global economy for decades. This has accelerated the clear responsibility of asset owners to incorporate ESG factors into their investment frameworks. This makes it an exciting time as an investor, to develop more robust portfolios that consider these ESG issues and become more innovative in terms of our more traditional investment frameworks, which have purely focused on risk and return objectives.”
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We look for opportunities across all asset classes that look mispriced based upon measures of value, momentum, risk and cyclical behaviour.
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Zoe also oversees QIC’s Opportunistic Asset Allocation framework, which takes tilts from time to time away from their strategic fund positions.
“We look for opportunities across all asset classes that look mispriced based upon measures of value, momentum, risk and cyclical behaviour”, Zoe shared.
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In the long term, equity risk premia will deliver the best returns for clients but will also come with higher levels of risk.
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From an investment perspective, the QIC State Investments team manages around AU$58 billion for the Queensland Government and related clients. “We achieve our clients’ various investment objectives by targeting specific levels of risk, based upon clients’ levels of risk appetite. We believe in the long term, equity risk premia will deliver the best returns for clients but will also come with higher levels of risk”, Zoe revealed.
“In addition, equities have benefited from historically low discount rates over the past decade, and we are mindful that the excess returns we have all experienced in the past few years will not continue into perpetuity. For that reason, we are continuing to expand our asset allocation into more illiquid markets, where QIC has had investment expertise for many years. Our current levels of focus include private debt, infrastructure and property. These asset classes provide exciting opportunities to continue to embed integrated ESG approaches into our investment philosophy”, Zoe explained.
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We are continuing to expand our asset allocation into more illiquid markets. Our current levels of focus include private debt, infrastructure and property.
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Zoe views the current focus on fees we are seeing in our industry as one of the key inhibiting factors to attaining better outcomes for clients. “While the focus on fees is understandable, given the very low return world we currently live in, the debate needs to focus better on risk, the selection of betas to use in order to meet the risk and return targets; and alpha. We should be focusing on alpha per dollar spend rather than overall fees. However, on the upside, one “structural barrier” that I think has been lifted is the traditional focus on risk and return and the increasing recognition that we need to focus on ESG risks – which is a positive for all stakeholders”, Zoe opined.
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We should be focusing on alpha per dollar spend rather than overall fees.
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Zoe left us with a couple of career related and personal reflections which have had a significant impact on her professional journey thusfar.
“I worked for RBS in London during the GFC, during the demise of the banking sector. It made me grateful to be Australian, knowing I could go home if I needed to, and unfortunately, that’s not the same now for people living and working in the UK during this pandemic. That experience taught me to be cautious of views from managers who were mostly so buoyant going into the GFC. It also made me more critical of how we allocate clients’ FUM.
On a personal note, having a child has taught me patience, calmed my inner and outer voices, and cemented my value of family. They say it takes a village to raise a child, but I think it also takes a village to have a rewarding career. I especially am grateful for the network of men and women who I have turned to for advice during my career – I have learnt to be open and honest, that good temperament is valuable for making good investment decisions, and that I am not always right!
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They say it takes a village to raise a child, but I think it also takes a village to have a rewarding career.
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Disclaimer
The views expressed in this publication are solely those of the individual and do not reflect those of their employer organisation.
All information contained within this publication is general advice only, as the knowledge levels and needs of all individual and corporate investors vary greatly this publication should not be used solely as a decision-making tool, further opinions and information should be sought before making an investment decision. It is the recommendation of Global Investment Institute (GII) that you seek the opinions of a fee-for-service, independent investment adviser before making any investment decision.
The authors, directors or guest writers may have a financial interest as investors, trustees or directors in investments discussed or recommended in this document. It has been assessed by the editors that these financial interests have not had an impact on the material contained here within.
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